Financial Crime World

Unmasking the Web of Deceit: Australasian Organisations Brace for Financial Audits and Fraud Detection

The Prevalence and Cost of Corporate Fraud in Australia

In a world of intricate schemes and clandestine actions, corporate fraud remains a persistent and costly concern for businesses worldwide, including in Australia. According to recent statistics:

  • Around 50% of Australian businesses experienced some form of fraud between 2005 and 2007 (PricewaterhouseCoopers’ Economic Crime Survey 2007, Australian Institute of Criminology’s 2003 report, Counting the costs of crime in Australia).
  • This resulted in an annual financial toll of approximately $5.8 billion, accounting for one-third of the total cost of all crime in the country.

A Systematic Approach to Fraud Management

organisations, regardless of size or industry, cannot afford to turn a blind eye to this issue. While there is no foolproof solution for preventing fraud, a systematic and considered approach to its management can minimise risks. This guide primarily focuses on mitigating internal fraud but many of the methods described can be equally effective against external fraud.

Fraud: A Multilayered Threat

Fraud, Control and Investigation

  1. Internal fraud control (Embezzlement, expense reimbursements, ghost employees, commission schemes, etc.)

With approximately 71.4% of Australian fraud attributed to internal perpetrators (PricewaterhouseCoopers’ Economic Crime Survey 2007), the following sections will explore primary methods to counter internal fraud, including fraud prevention techniques, proactive fraud detection, effective fraud investigation, and the use of electronic investigations.

The Fraud Risk Management Framework: A Vital Component of Financial Security

To successfully mitigate fraud risks, a robust fraud risk management framework must be established. The framework should encompass the following steps:

  1. Establishing a sound framework

In response to high-profile fraud-related collapses, governments and regulatory bodies have introduced legislation and guidelines aimed at strengthening financial reporting transparency and accountability. Key regulations for fraud risk management in Australia include:

  • The Australian Auditing Standard (ASA) 240
  • The Corporate Law Economic Reform Program (CLERP 9)
  • AS 8001-2003: Fraud and Corruption Control

  1. Identifying fraud risks

To effectively manage fraud risks, organisations must first identify areas of elevated risk. This risk assessment should extend beyond financial risks to include non-financial concerns such as:

  • Purchasing and payroll
  • Sales and inventory
  • Cash and cheques
  • Physical security
  • Piracy, intellectual property, and confidential information
  • Information technology

  1. Assessing the risks

Once potential fraud risks have been identified, a thorough risk assessment is necessary to determine the likelihood and potential impact of each risk. This process involves:

  • Risk quantification
  • Prioritisation
  • Mitigation planning

Organisations may consider using electronic survey tools to gather input from all employees and business units or conduct fraud risk assessments through workshops and brainstorming exercises to explore potential fraud scenarios.

  1. Involving all stakeholders

Open communication and collaboration between stakeholders are essential for the successful implementation of a fraud risk management framework. All staff, from frontline employees to management, should be informed of the organisation’s commitment to fraud prevention and encouraged to report any suspected fraudulent activity. Empower employees through targeted training and make reporting mechanisms readily accessible. Additionally, involve external personnel such as auditors, legal advisers, and forensic analysts to provide valuable insights during the risk assessment and investigation stages.

In conclusion, as organisations continue to navigate the complex and evolving landscape of financial risk and fraud, a robust fraud risk management framework is imperative for their financial and operational security. Regular assessment and addressing of potential fraud risks allow businesses to maintain stakeholder trust and mitigate the harmful consequences of fraud.